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Foreign aid, poverty reduction, and democracy

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  • B. Mak Arvin
  • Francisco Barillas

Abstract

Eradication of poverty is the most pervasive goal of donors' foreign aid programmes. As a result, there has been much research on the degree of correlation between aid and poverty reduction. However, this work to date has shed little light on the direction of causation between the two variables. Using the method of Granger causality, and conditioning aid and poverty on the state of democracy in developing countries, this study asks whether aid flows impact poverty, whether poverty influences aid flows, or whether causality proceeds in both directions simultaneously. While the results identify no causal relationships in some of the sub-samples, they point to the existence of a multitude of relationships across others.

Suggested Citation

  • B. Mak Arvin & Francisco Barillas, 2002. "Foreign aid, poverty reduction, and democracy," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2151-2156.
    • Handle: RePEc:taf:applec:v:34:y:2002:i:17:p:2151-2156
    DOI: 10.1080/00036840210136718
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    References listed on IDEAS

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    1. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    2. Burnside, Craig & Dollar, David, 1998. "Aid, the incentive regime, and poverty reduction," Policy Research Working Paper Series 1937, The World Bank.
    3. Collier, Paul & Dollar, David, 2001. "Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals," World Development, Elsevier, vol. 29(11), pages 1787-1802, November.
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